Detroit Emergency Manager Kevyn Orr’s preliminary plan for creditors treats general obligation bonds the same as any other form of municipal obligation – and [Michigan] Governor Snyder signed off on the bankruptcy application. As a result, Nuveen Asset Management believes municipal investors should now view all Michigan general obligation bonds as having no greater standing than any other form of municipal obligations: be they leases, retiree benefit obligations or even equipment vendor contracts. Therefore, we believe it prudent for municipal investors to question whether they should pay any form of safety premium for Michigan general obligation bonds relative to other forms of municipal liabilities in a state where the governor has granted his implicit blessing to such drastic treatment of full faith and credit obligations.

Nuveen says it holds just over $62 million of Detroit general obligation bonds, along with $24 million of distributable state aid bonds, $157 million of water bonds and $256 million of sewer bonds across 34 portfolios, with the Detroit holdings representing 6.81% or less of each. Nuveen says roughly 70% of those bonds are insured. From Nuveen again:

As a fiduciary to several Detroit creditors, Nuveen Asset Management will seek to obtain the best possible outcome for our investors. As a large municipal investor, we also have a strong interest in the legal issues to be considered in this case and will continue to impress upon the State of Michigan the negative implications of Detroit’s bankruptcy for communities throughout Michigan.

Standard & Poor’s Capital IQ said last week that of the 10 largest multistate muni exchange-traded funds, only two have more than 3.5% exposure to Michigan bonds. The PowerShares VRDO Tax-Free Weekly Portfolio (PVI), with a 5.5% Michigan exposure, is unchanged at $24.99 Monday, and the PowerShares Insured National Municipal Bond Portfolio (PZA), with a 4% weighting, is down 29 cents, or 1.23%, to $22.98. Separately, the Nuveen Municipal Value (NUV) closed-end fund is down 1% Monday to $9.26.